New currencies, transformative technologies and my trip to Dublin without cash

I started writing this Blog a couple of weeks ago as Bitcoin had, as The Times put it, a ‘watershed moment’ as it went over $6,400, which is a phenomenal performance in a short space of time as it was trading at a tenth of that a year ago. Unsurprisingly, there was very quickly loads of news articles using words like ‘craze’ and ‘surge’ so when they say ‘watershed’ presumably that is until it goes over $7,000 which it duly did a few days later. Then last week it had a serious correction and crashed but earlier this week reclaimed those losses and then some as it went up to $11,000. Writing this Blog has been like herding cats, I reach a position and then that position shifts. What in Sam Hill is going on ?!?!?

I thought we should discuss three things: Cypto/Bitcoin, Blockchain and Cash.

As regular readers of my blogs will know, I hang on the insights of The Finanser, in particularly the views of Chris Skinner and would strongly recommend spending time on the The Financial Services Club website, it’s both a lot of fun and educational. Chris has written thousands of words on Blockchain and Bitcoin (he’s nervous about it) and I would concur with his point of view.

Let’s start with Bitcoin

I have been hearing and reading a lot of about the disruptive power of crypto currencies, the most famous is Bitcoin, which has pretty much become the Hoover of the crypto world. The crypto version of an IPO is the ICO (initial coin offering) which is an investors delight as they come thick and fast with all its progressive growth stories. The Futures Market has focused on Bitcoin in the last couple of months and in doing so have raised concerns about a spike in speculation as well as issues about a lack of regulation and the risk of another financial crisis. Jamie Dimon famously said “…it’s a fraud..” as people love the anonymity and those who are outside the system are probably criminals. A lot of people see it as a more secure warehouse than a bank and a quick way to make money. I even know someone who bought a house in Brighton without a mortgage courtesy of Bitcoin which isn’t bad.

Japan has made it legal tender but it causes an issue for central banks because it’s outside of their control and policies. China on the other hand are wary and have made it difficult for people to trade in Bitcoin to prevent further circulation. I read a piece recently that said Bitcoin could become like the gold standard, but who would want a currency that peaks and troughs so rapidity? It isn’t stable but some suggest it will settle down in time. It could even be time for central banks to start using digital currency as they would have the opportunity to do things like set interest rates below zero to essentially charge to hold money, however this is a daunting and unknown future.

What about Blockchain?

Banks have adopted Blockchain tech and methodologies as a corner stone of their technology and commercial strategies. It bypasses traditional banking systems and works anonymously to record crypto currency transactions. This is not a fleeting change in the market and it is fast becoming the norm so I think it is here to stay, although I question if banks and other financial institutions really understand the technology and know where it could get them.

They can see the benefit of digital security and deep levels of encryption but there is a monumental shift required in infrastructure, processes and thinking as they have centuries of experience in traditional banking. Chris Skinner warns that it is not just financial services sectors that need to embrace this change but other industries and the government too.

And lastly let talk about Cash, remember that…?

I was in Dublin for a week last month, it’s quite a tech-savvy city so I thought I’d test out only relying on my Applepay app to see how far I got, which meant no cash or card payments. Can you guess the answer to how far I got? Pretty darn far. The only time I didn’t use my phone to pay was when I bought a paper and a Mars bar at a Newsagents who had a minimum spend of 10 Euros (how much?!?!) on electronic transactions. I felt like a complete hipster as I walked down the Liffey.

So, are we done with cash? I listened to a blog recently, albeit an American one, that said there was more cash in circulation today than ever before and I wondered how that could be. Cash is cheap compared to the additional cost to retailers for processing electronic transaction at 0.15% vs. credit cards at 0.79%. I can see that in fine margin businesses that is a huge difference. Sweden on the other hand has seen a steady drop in note circulation and there’s been rumours about it becoming the first cashless society.

What about the UK?

In the UK contactless payments tripped in the last year and internet shopping continued to grow. Cash payments accounted for 40% of total transactions and of course prevails as it is the most instant payment method, it works every time.

I think we are at an important point where the decisions we make today will set the scene for the future and although we talk about the speed of change, I think it’s fallacy. There is a long, unknown road ahead on crypto/Bitcoin, Blockchain and yes, cash.

We welcome your feedback and comments, if you would like to contact us directly please call 01273 651 500 or email contactme@grovelands.co.uk. To keep up to date with our news and updates don’t forget to follow our social media channels and sign up to our newsletter.

David Leen

6th December 2017

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